The decision to change an existing medical billing model should not be taken lightly. Even the best case scenario involving a change to/from an in-house or outsourced medical billing model calls for some extent of short-term cash flow disruption and we won’t even bring up the worse case scenario.

Any adverse health care provider’s starting point is to determine if his/her current medical billing model is having the desired financial result. Although financial analysis is past the scope of the discussion, the provider, accountant or any other financial professional must have the ability to compare actual financial data to revenue and operating budgets. Assuming the integrity in the practice’s financial information is intact though accurate and timely data entry, the provider’s medical billing software should have the capacity for generating actionable management reports.

Ultimately, basic financial analysis will shed light on the good and bad points in the provider’s medical billing model. Some points to consider when evaluating a medical billing model: the inherent strengths and weaknesses of in-house and outsourced medical billing models; the provider’s practice management experience & management style; the regional labor pool; and medical billing related operating costs.

On-site versus Outsourced Models

No medical billing model is without unique advantages and pitfalls. Take into account the in-house medical billing model. Approximately 1 / 3 of independent medical care practices utilizing an on-site medical billing model experience cash flow issues starting from periodic to persistent. The degree of action necessary for a provider to solve his/her cash flow issues may vary from a simple adjustment (adding staffing hours) to your complete overhaul (replacing staff or switching for an outsourced medical billing model).

The provider with the under performing in-house medical billing model has a clear edge over the provider with an under performing outsourced (also referred to as third party) medical billing model: proximity. An on-site medical billing model is within walking distance. A provider has the ability to observe, assess and address – see the process, measure the system’s strengths and weaknesses and address issues before they become full blown problems.

Consider the provider with the outsourced medical billing model. The relatively low entry barriers from the alternative party medical billing industry have triggered a proliferation of medical billing services scattered throughout the United States. Chances are the provider’s medical billing service is found in another geographic area making first hand observations and assessments impossible.

The role of management reporting in a 3rd party medical billing model is crucial. A provider must regularly review charge entry, posting, write offs and account receivable balances to insure his/her cash flow is correctly managed. A study as basic as 30, 60, 90 days in receivables will quickly provide a provider a good idea of how well their medical billing and account receivable processes are managed by a 3rd party medical billing service.

A common mistake for most providers having an outsourced medical billing model is to gauge the effectiveness of the procedure in the very short term, i.e. week to week or month to month. Providers keep a vague and informal feeling of their cashflow position by maintaining mental tabs on the checks they received this week versus the prior week or maybe they deposited as much money this month as recently. Unfortunately by the time a weakened cashflow receives the provider’s attention a much larger problem may be looming.

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What causes a decelerate in income in the outsourced medical billing model? The most commonly cited scenario is insufficient follow up on the area of the medical billing service. Why? Like any other business, medical billing companies are concerned first of all with their own cashflow.

A billing company generates 99.99% with their revenues on the front end of the billing process – the info entry procedure that generates claims. Billing businesses that devote nearly all of their manpower to data entry will be understaffed on the back end of the billing process – the follow up on unpaid claims. Why? Every hour of data entry generates an extra one to two hours of claim follow up. Unfortunately for that provider, a billing company that ignores fails to devote enough manpower towards the diligent followup of 30, 60, 3 months in receivables can mean the real difference between a provider making a profit or suffering a loss during any given time.

Practice Management Experience & Management Style

Providers with practice management experience should be able to effectively manage or recognize and resolve a problem with his/her billing process prior to the income crunch gets out of control. On the contrary, providers with hardly any practice management experience will more likely allow his/her cash flow to achieve a crucial stage before addressing as well as recognizing an issue even exists.

Whether a provider with billing issues chooses to retain and correct their current model or implement a completely different billing model depends to your great extent on his/her management style – some providers cannot fathom having their billing staff out of sight or ear shot while other providers are completely comfortable with turning their billing process to a 3rd party service.

Local Labor Pool

Whether a provider chooses an on-site or outsourced billing model, an excellent medical billing process continues to be contingent on the people associated with executing the medical billing process. Over a side note, choosing office staff to have an on-site model is comparable to choosing a third party billing company. No matter the model, a provider will want to interview the possible candidates or an account executive from the alternative party billing service for experience, motivation, team oriented personalities, highly developed communication skills, responsiveness, reliability, etc.

Providers with the in-house model will need to count on their human resource and management skills to draw in, train and retain qualified candidates from the local labor pool. Providers with practices situated in areas lacking qualified candidates or with no want to get bogged down with hr or management responsibilities could have hardly any other choice but to pick an outsourced model.

Medical Billing Related Costs

As a business person, the provider’s primary responsibility would be to maximize revenues. A responsible business owner will scrutinize expenditures, analyze returns on investments and reduce costs. Within an on-site model, expenses associated with the billing process range from the Internet access used to transmit states to the workplace space occupied by the billing staff.

The simplest way to control billing costs is for the provider to think of the sum of those costs as being a percentage of the practice’s revenues. The provider’s accounting software should permit him/her to classify and track billing related costs. After the billing related expenses are identified, dividing the amount of the expenses by total revenues will convert the expense to your amount of revenues.

The exercise of converting billing related expenses to some amount of revenues accomplishes three things: 1) receives the provider, business manager or accountant in tune using the billing related costs from the practice; 2) supplies a grounds for more comprehensive analysis of the practice’s cost and revenue components; and three) provides for easy comparison involving the cost impact in the in house versus outsourced models.

The expense of an outsourced model is fairly easy. Considering that the fees of the vast majority of outsourcing services appear to be a percentage of any provider’s revenues, the annualized cost of the medical billing service’s fees will be a fairly close approximation in the provider’s billing related costs for this particular model.

In the event that a provider is considering an outsourced model, he/she should remember that this model will not be necessarily the silver bullet to ending all billing related costs and headaches that these particular services fxbgil to market. True the billing company will acquire some of the expenses associated with this process nevertheless the provider will still need staff to act since the intermediary involving the provider’s office and billing service, i.e. a person to transmit data to the billing service.

Costs will further increase for the provider if the billing service charges extra fees for add-on services such as online use of practice data, practice management software, management reports, handling patient inquiries, etc. The actual cost of the service increases even more if claims 30, 60, 90 in receivable usually are not properly worked to facilitate adjudication.

In conclusion, the provider must carefully weigh the pros and cons of each and every model before making a decision. When the provider will not be comfortable or experienced analyzing financial data he/she must enlist the expertise of an accountant or any other financial professional. A provider must realize the expenses and also the inherent benefits and drawbacks of each billing model.

Providers employing an on-site model need to understand the actual cost of their process. Determining the real cost not only requires accurate financial data and accounting but an objective evaluation of the components of his/her current process, i.e. technology and staff. Why? Outdated technology, under staffing, turnover, or unqualified staff may contribute to the look of an inexpensive of ownership but those shortcomings will ultimately produce a lack of revenues.

In the event that a provider is decided to use a 3rd party billing service, he/she should invest enough time to thoroughly familiarize him/herself with the outsourcing industry prior to interviewing prospective billing services. The provider must understand the hidden expenses associated with the outsourced model in order to make an educated decision.

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